The risk level is based on an industry-wide Standard Risk Measure
The Standard Risk Measure (SRM) shows how risky the option is, on a scale from very low (1) to very high (7).
The SRM allows you to compare different options. It’s based on the number of years each investment option is expected to deliver negative annual investment returns over a 20-year period.
It’s not a complete assessment of all forms of investment risk. For instance, it doesn’t detail what the size of a negative return could be or the potential for a positive return to be less than a member may require so they meet their financial objectives. It also doesn't take into account the impact of administration fees and tax on the likelihood of a negative return.
You should still ensure you're comfortable with the risks and potential losses associated with your chosen investment option(s).
Risk bands
| Risk band | Risk label | Estimated number of negative returns over any 20 year period |
|---|---|---|
| 1 | Very low | Less than 0.5 |
| 2 | Low | 0.5 to less than 1 |
| 3 | Low to medium | 1 to less than 2 |
| 4 | Medium | 2 to less than 3 |
| 5 | Medium to high | 3 to less than 4 |
| 6 | High | 4 to less than 6 |
| 7 | Very high | 6 or greater |
Our process for establishing the level of expected risk
We conduct an annual review of investment strategy. As part of this review, we also look at the expected risk and returns of each asset class.
A model is used which combines the risk, return, and correlation assumptions of each asset class, together with our strategic asset allocation weights to determine the expected total portfolio risk and return characteristics.
The estimated number of negative returns over any 20 year period is calculated from the portfolio risk and return estimates.